DTW Associates Limited · DRN-3298651

The complaint Ms W has complained that DTW Associates Limited trading as Auto Advance lent to her irresponsibly. What happened I issued a provisional decision about this complaint in January 2022 that I summarise below. Ms W was given two logbook loans by DTW in 2018. Both loans were secured against a vehicle that Ms W owned. The first loan in January 2018 was for £3,000, due to be repaid in 36 monthly instalments of about £255. The total amount payable, including interest, was just over £9,210. I understand Ms W settled this loan when she borrowed again from DTW a few months later. The second loan in May 2018 was for £6,000, due to be repaid in 36 monthly instalments of about £511. The total amount payable, including interest was just over £18,420. I understand this second loan has also been settled. I explained the basis on which I would decide the complaint, in particular the steps that DTW needed to take such as the amount being lent, and the consumer’s income and expenditure. I said that DTW was required to establish whether Ms W could sustainably repay her loans - not just whether the loan payments were technically affordable on a strict pounds and pence calculation. I set out the overarching questions I considered in order to decide what’s fair and reasonable in the circumstances of this particular complaint:  Did DTW complete reasonable and proportionate checks to satisfy itself that Ms W would be able to repay her loans in a sustainable way? If so, did it make a fair lending decision? If not, what would reasonable and proportionate checks have shown at the time?  Did DTW act unfairly or unreasonably in some other way? DTW asked Ms W for information about her income and expenditure and it acquired a credit report. DTW says that Ms W’s credit score was below average, and it considered the declared expenditure didn’t match with its expectation, so it requested bank statements to verify Ms W’s financial position. DTW provided transactional data from Ms W’s bank statements which it says were supplied electronically by a third party. From what I’d seen, I thought the checks that DTW carried out before it agreed to lend to Ms W each time were reasonable and proportionate, in the circumstances. DTW thinks both loans were affordable for Ms W. The credit report acquired by DTW prior to loan one noted that Ms W had 3 credit accounts

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in arrears. She also had 6 defaulted accounts, but I thought it would have been reasonable for the lender to have considered these defaults to be historic. I reviewed the information supplied including the ‘transactional data’ and also Ms W’s bank statements. Various sums were being transferred in and out of her account, over and above Ms W’s salary and benefits. I hadn’t seen anything which explains whether DTW queried these extra funds at the time or whether it took steps to establish whether these sums were likely to be a sustainable source of additional income for the whole of the loan term. It appeared that Ms W was spending more than she had estimated on her application for the first loan. There are some returned payments and direct debits on Ms W’s bank statements, unarranged overdraft charges and Ms W had taken at least one other high cost loan in the month prior to her first loan with DTW. But I didn’t think it would have been unreasonable for DTW to assume that Ms W was borrowing in order to put herself into a better financial position overall. On balance, from what I’d seen, I couldn’t fairly say that I thought DTW ought reasonably to have come to the conclusion that Ms W was in such a poor position financially that it would be irresponsible or unreasonable to provide the first loan to her. I said I was not intending to uphold Ms W’s complaint about her first loan. However, I didn’t think that DTW made a fair lending decision when it provided the second loan to Ms W. DTW again checked Ms W’s income, credit file and reviewed bank statements prior to providing the second loan. It calculated that the second loan was affordable. But I thought DTW focussed its calculation of whether the loan was affordable for Ms W on a pounds and pence basis. As I’d already explained, the lender was required to establish whether the borrower could sustainably meet her loan repayments – not just whether the loan payments were technically affordable on a strict pounds and pence calculation. The loan payments being ‘affordable’ on this basis might be an indication a consumer could sustainably make their repayments. But it doesn't automatically follow this is the case. This is because the relevant regulations define sustainable as being without undue difficulty – in particular without incurring or increasing problem indebtedness. The customer should be able to make repayments on time, while meeting other reasonable commitments; as well as without having to borrow to meet the repayments. And it follows that a lender should realise, or it ought fairly and reasonably to realise, that a borrower won’t be able to make their repayments sustainably if they’re unlikely to be able to make their repayments without borrowing further. Ms W was returning to borrow for a second time from DTW around four months into a 36- month loan term. She was borrowing twice the amount she had previously borrowed; her monthly repayments also doubled, and she was liable to repay over £18,000 if the loan ran to its full term. Ms W’s regular income from her salary and benefits had not substantially increased and I hadn’t seen anything to suggest that DTW had confirmed that Ms W was due to receive regular additional income on a sustainable basis throughout the loan term. Ms W would be committing a substantial portion of her regular income to repay the second loan, which also substantially increased her indebtedness to DTW. Her credit report showed an increased number of credit lines that were in arrears. Ms W’s bank statements showed she had been experiencing an increased number of returned direct debits and other returned payments in the months leading up to the second loan (despite taking the first loan) and she was still paying bank charges for unarranged overdraft usage. DTW also noted a possible ‘loss of income’ in April. I thought DTW ought reasonably to have realised that overall, Ms W was at high risk of experiencing financial difficulty and that her financial position was worsening. And from what I’d seen, Ms W did experience difficulties meeting her

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repayments within a short time of taking the second loan. I understand that her vehicle was repossessed because she was unable to meet her repayments, and Ms W had to make a payment to DTW to settle the second loan and pay a repossession fee. Taking matters as a whole, I thought on balance that DTW ought reasonably to have realised that it was unlikely that in her circumstances, Ms W would be able to sustainably repay her second loan over the extended loan term. I thought in these particular circumstances, DTW should reasonably have concluded that it was not appropriate to lend to Ms W for a second time. I’d not seen anything which made me think that DTW treated Ms W unfairly in any other way. But I didn’t think DTW should have agreed to provide the second loan to Ms W. I said I was intending to uphold Ms W’s complaint about the second loan and directing DTW to put things right. I invited both parties to send me any further comments or evidence. Ms has told us that she accepts my provisional decision. DTW didn’t comment further, but it provided its calculation of the charges and interest due to Ms W in accordance with my provisional decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I’d like to thank both parties for all the information that has been provided about this matter. Given that I’ve not received any further evidence or comment that changes my mind about this complaint, I confirm the conclusions I reached in my provisional decision. I am upholding Ms W’s complaint about her second loan and DTW should put things right.

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Putting things right I think it is fair and reasonable for Ms W to have repaid the principal amount that she borrowed, because she had the benefit of that lending. But she has paid interest and charges on lending that shouldn’t have been provided to her. I understand that DTW has already returned the V5 logbook to Ms W. DTW should:  Remove all interest, fees, and charges from the second loan, including any charges or fees arising from the repossession of Ms W’s vehicle, and treat all the payments Ms W made as payments towards the capital.  If reworking Ms W’s loan account results in her having effectively made payments above the original capital borrowed, then DTW should refund these overpayments with 8% simple interest calculated on the overpayments, from the date the overpayments would have arisen, to the date the complaint is settled*.  Remove any adverse information recorded on Ms W’s credit file in relation to the second loan. *HM Revenue & Customs requires DTW to deduct tax from this interest. DTW should give Ms W a certificate showing how much tax it’s deducted if she asks for one. My final decision For the reasons given above, I partly uphold this complaint and direct DTW Associates Limited trading as Auto Advance to put things right as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Ms W to accept or reject my decision before 5 March 2022. Sharon Parr Ombudsman

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